One interesting tidbit about sentiment is that bulls have been reluctant to fully embrace the rally with 100% confidence. In other words, sentiment seems to be more along the lines of “OK. I will play along and make some money but will have one eye on the exits the whole time, because we all know this will end badly.” The latest AAII sentiment survey seems to support that view. And I think the guys over at Bespoke to a great job of breaking it down.
Bears will argue we do not need to see euphoria for a market top. In fact, declining bullish sentiment might be a sign of bad things to come. That is what makes a market, I suppose. But the prevailing trend gives the bulls the end until we see actual price signs of deterioration.
With the market’s rebound, clearly all those bulls that were so quick to move into the bearish and correction camp have now moved back into the ranks of bulls, right? Well, not necessarily. In this week’s sentiment poll from AAII, bullish sentiment increased by less than three percentage points from 28.4% to 31.1%. In other words, bullish sentiment is still more than 25% lower today than it was before the sell-off from the Italian election.
In many ways, the shifts in sentiment over the last two weeks are emblematic of the entire bull market. Investors have been slow to embrace equities, and even after they commit, they already have one foot out the door.
